CREATING A LEARNING SOCIETY

It has long been recognized that an improved standard of living results from advances in technology, not from the accumulation of capital. It has also become clear that what truly separates developed from less-developed countries is not just a gap in resources or output but a gap in knowledge. In fact, the pace at which developing countries grow is largely a function of the pace at which they close that gap.

Thus, to understand how countries grow and develop, it is essential to know how they learn and become more productive and what government can do to promote learning. In Creating a Learning Society, Joseph E. Stiglitz and Bruce C. Greenwald cast light on the significance of this insight for economic theory and policy.

 

– And if it is true that productivity is the result of learning and that productivity increases (learning) are endogenous, then a focal point of policy ought

to be increasing learning within the economy; that is, increasing the ability and the incentives to learn, and learning how to learn, and then closing the

knowledge gaps that separate the most productive firms in the economy from the rest. Therefore, creating a learning society should be one of the major

objectives of economic policy. If a learning society is created, a more productive economy will emerge and standards of living will increase

-The pace of learning (innovation) the most important determinant of increases in standards of living

– Even when an innovator becomes rich as a result of an innovation, what the innovator appropriates is often but a fraction of what the innovation has added

to GDP. This is especially obvious in the case of those who have made the most important discoveries—those who have made major contributions to the advances

of basic science and technology receive rewards that are substantially below their social contributions. Think of Alan Turing, James Watson and Francis

Crick, Timothy Berners-Lee, or even the discoverers of the laser/maser and the transistor

– We have shown not only that innovations may fail to improve the welfare of all groups in society

– The presumption is that there may be winners and losers, but society as a whole benefits, which means that the winners could more than compensate the

losers. One naïve version of this holds that there are no losers, that somehow the benefits do trickle down to everyone. There is no empirical support for

the strong version of trickle-down economics—it should be obvious that, repeatedly, large numbers of individuals have become worse off as a result of

innovations that seemingly increased GDP. A weaker version holds that eventually everyone benefits from higher growth, and that would be true if at the same

time there was not an increase in inequality.

– For instance, an alternative was needed for chimney sweeps, those small, underfed boys who used to be sent down chimneys. It was not good for their health,

but not cleaning chimneys meant increasing the risk of fire, with serious consequences. So the Royal Society offered a prize to anybody who invented a

mechanical way of cleaning chimneys. The prize provided an incentive—and it worked. A patent system might also have motivated the development of a mechanical

device (though it did not), but if it had, there would have been a problem: The owner of the patent would have wanted to maximize the return on the

innovation by charging a high fee for its use. That would mean that only rich families could have afforded to use the mechanical device, and young boys’

lives would have continued to be put at risk. With the prize system, everyone could benefit from this socially important innovation.

– Drug companies have insufficient incentives to develop medicines for the diseases that tend to afflict poor people, simply because there is no money in

those drugs. One of the widely discussed ideas for addressing this problem is a guaranteed purchase fund, in which the World Bank or the Gates Foundation

would guarantee one or two billion dollars for the purchase of the drug to those who develop a vaccine or cure for AIDS, malaria, or some other disease

afflicting the developing world. In effect, there would be a certain market. The guarantee of one or two billion dollars for the purchase of the drug would

act as a prize